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Letter Decision No. CONF-6-2017

REDACTED VERSION

March 9, 2017

Application by the BNSF Railway Company (BNSF) pursuant to sections 127 and 128 of the Canada Transportation Act, S.C., 1996, c. 10, as amended, for a declaration by the Canadian Transportation Agency (Agency) as to when interswitched blocks of 60 or more cars are eligible for the car block rate in the Railway Interswitching Regulations, as amended, SOR/88-41 (Interswitching Regulations).

Case number:

16-01380

SUMMARY

[1] BNSF filed an application with the Agency seeking an order from the Agency declaring that:

the Interswitching Regulations car block rate is available if the interswitched car block is offered by a single shipper as a block;

the configuration of a shipper’s siding is not relevant to determining whether traffic is eligible for the car block rate;

the necessity to break a car block for placement in interchange tracks is not a relevant consideration in determining eligibility for the car block rate;

the Emerson interchange has sufficient capacity for the convenient interswitching of car blocks; and,

Canadian National Railway Company’s (CN) operating practices within the Emerson, Manitoba interswitching zones do not affect the eligibility of Paterson Grain (Paterson) and Richardson International Limited (RIL) traffic to the car block rate.

[2] BNSF’s application arises due to a dispute between BNSF and CN as to the applicable interswitching rate on certain traffic interswitched between them at Emerson; however, BNSF submits that the issues raised in the application affect all traffic interswitched under the car block rate.

[4] On March 31, 2016, pursuant to section 29 of the Canadian Transportation Agency Rules (Dispute Proceedings and Certain Rules Applicable to All Proceedings), SOR/2014-104, (Dispute Adjudication Rules), RIL filed a request to intervene in support of BNSF’s application. By Decision No. LET-R-17-2016, dated May 13, 2016, the Agency granted RIL’s request to intervene.

[5] On April 4, 2016, Paterson filed a Position Statement with the Agency in support of BNSF’s application. By Decision No. LET-R-17-2016, the Agency accepted Paterson’s Position Statement.

[6] The issues to be addressed in this case, as formulated by BNSF, are:

Is the car block rate available if a single shipper is offering a car block of 60 or more cars for interswitching, and if so, is the configuration of the shipper’s siding relevant to determining if the traffic is eligible for the car block rate?

Is the necessity to break a car block for placement in interchange tracks a relevant consideration in determining eligibility for the car block rate?

Does CN’s Emerson interchange have sufficient capacity for the convenient interswitching of car blocks?

Should CN’s operating practices within the Emerson interswitching zones affect the eligibility of Paterson and RIL traffic to the car block rate?

[7] For the reasons set out in greater detail below, the Agency finds that:

The car block rate is available if the interswitched car block is offered by a single shipper as a block, and the car block can be interswitched as a block with a reasonable number of hook-and-haul movements only, which is determined on a case by case basis. In this case, the Agency has examined the capacity and the configuration of the two subject sidings (Paterson’s Morris Terminal and RIL’s Red River South elevator) as well as the number of hook-and-haul movements required for interswitching traffic as set out in the examples provided by both BNSF and CN. The Agency finds that the capacity and configuration of the shippers’ sidings and the limited number of movements are such that the interswitching of the subject traffic at the Emerson interchange qualifies for the car block rate.

The necessity to break a car block for placement in interchange tracks does not, in and of itself, negate the eligibility for the car block rate. Rather, it is the handling of the traffic in the interswitching yard that determines whether the car block rate is available. Entitlement to the car block rate is lost if there is a requirement to marshall and/or classify cars in the yard. In this case, the Agency finds that the handling of the subject traffic at the interchange does not involve any requirement to marshall and/or classify cars. As such, the car block rate applies.

In light of the foregoing findings, there is no need to consider issues 3 and 4.

BACKGROUND

[8] BNSF receives interswitched traffic from CN at Emerson. The traffic originates at RIL’s Red River South elevator at Letellier, Manitoba (capacity for 104 rail cars) and at Paterson’s Morris Terminal located at Morris, Manitoba (capacity for up to 104 cars). The traffic is shipped to points in the United States of America market.

[9] Emerson is an interchange where the line of BNSF connects with the line of CN and where loaded or empty cars may be stored until delivered or received by the other railway company.

[10] CN takes the position that this traffic is not eligible for the car block rate and has sued BNSF in the Manitoba Court of Queen’s Bench for the difference between the single car rate and the car block rate for this traffic.

Paterson’s Position Statement

[11] Paterson supports BNSF’s request for relief as the outcome of the application will directly impact Paterson’s access to competitive freight rates to the United States and Mexico from the Morris Terminal. Paterson argues that it is critical to have access to BNSF rail cars at competitive rates as the Morris Terminal is one of Paterson’s closest high-throughput terminals to the United States border, and it is a significant origin point for Paterson’s shipments beyond the border.

[12] According to Paterson, it orders cars in blocks of 104 railcars from BNSF. The Morris Terminal has 5 ladder tracks that can accept up to 104 rail cars at one time, broken up into sub-blocks of 25-29 rail cars.

[13] Paterson submits that CN is attempting to avoid its legislated interswitching obligations by taking the position that BNSF rail cars delivered to and from the Morris Terminal via interswitching service in blocks of 60 or more cars are not eligible for the regulated car block rate because the car blocks cannot fit into CN’s downtown Emerson yard.

[14] Paterson also submits that CN’s refusal to abide by the regulated car block rate for interswitching service amounts to an attempt to eliminate a competitor and is inconsistent with the policy objectives behind the interswitching provisions of the CTA. Paterson states that interswitching is a competitive access provision designed to foster competition for the benefit of shippers whose facilities lie within interswitching limits.

THE LAW

[15] Interswitching is the term used by Parliament in the CTA to describe the economic regulatory regime that governs federally regulated railway companies (railway companies) when they transfer or interchange certain freight traffic between themselves at a railway interchange.

[16] Interswitching is one of the competitive access provisions of the CTA for the benefit of shippers. Where applicable, it can provide a shipper with access to competing railway companies at a railway interchange. It gives shippers options. If the shipper is content to send or to receive its traffic via the railway company that serves the shipper’s facility or siding directly, the shipper may do so. Conversely, if the shipper prefers to send or to receive its traffic via a competing railway company that has access to an interchange, then the shipper may direct that its traffic be carried by the competing railway company. This is true even though the competing railway company does not serve the shipper’s facility or siding directly.

[17] Interswitching is a mandatory regulatory regime: where a particular shipper’s traffic originates or terminates within a certain prescribed distance of an interchange, and where that traffic is required to be interchanged, then the two railway companies must interchange that traffic in accordance with the terms and conditions prescribed by the Agency in the Interswitching Regulations, as provided for in subsection 127(3) of the CTA.

[18] Among other things, the Interswitching Regulations prescribe the maximum rate per car that one railway company must pay to the other railway company for carrying a shipper’s interswitching traffic between the origin and the interchange or between the interchange and the destination. In the Interswitching Regulations, the railway company that performs the interswitching service for the benefit of another railway company is called a terminal carrier.

[19] In Canadian Pacific Railway Company v. Canada (Transport, Infrastructure and Communities), 2015 FCA 1, at paragraph 16, the Federal Court of Appeal summarized this economic regulatory regime as follows:

To summarize, interswitching involves the transfer of traffic for one line of railway to another which requires that there be two lines of railway which connect with each other. In addition, that connection must include an interchange, that is a place where the cars of one railway company can be stored until they are picked up by the other railway company. Finally, if the point of origin (or destination) of a continuous movement of traffic is within the prescribed distance from an interchange a railway [company] shall not exchange traffic at that interchange except at the prescribed rates.

[20] Although interswitching is a mandatory regulatory regime, not all traffic interchanged between two railway companies at an interchange is subject to the Interswitching Regulations. Interswitching does not apply to the traffic, if any, that is interchanged between two railway companies at an interchange where that traffic originates or terminates beyond prescribed interswitching limits. Railway companies are free to negotiate amongst themselves the rate or rates that apply to the transfer or interchange of any traffic at an interchange that is not subject to the Interswitching Regulations.

[21] Interswitching of traffic between railway companies is not new; it existed in Canada as early as 1904Footnote 1. Interswitching was introduced as a means to limit the proliferation of the construction of railway lines in urban areas serving manufacturing-based industries, thereby avoiding a situation where two or more railway companies would each want to construct their own line of railway directly to a shipper’s facility.

[22] Interswitching, at that time, was not primarily a competitive access provision as railway companies did not and could not compete for a shipper’s traffic on the basis of price. Prior to 1987, all railway freight rates were either set, or approved by the regulator. Prior to 1987, railway companies all charged the same rates for the same commodities and all were prohibited, by law, from charging different rates to different shippers. All shippers paid the same rates for railway transportation regardless of the volume of their traffic and regardless of which railway company carried their goods. In 1904, interswitching was also limited by distance; it applied only to traffic that originated or terminated within a radius of 4 miles (6.4 km) of an interchange.

[23] Parliament changed all of that significantly in 1987 with the coming into force of the National Transportation Act, 1987, S.C. 1987, c. 34. At that time, Parliament embraced economic deregulation; railway companies were given the freedom to set their own rates for the transportation of traffic by railway; these rates could be negotiated directly with the shippers of the goods, without any initial regulatory oversight or approval. Rates could be kept confidential. Moreover, for the first time, railway companies could legally engage in differential pricing: railway companies could charge different rates to different shippers, even where those shippers were offering the same commodity or type of traffic for carriage by railway. Among other things, shippers who shipped large volumes of freight could legally benefit from potentially lower rates from the railway company.

[24] Economic deregulation of the railway industry did not extend to interswitching. To the contrary, in 1987, Parliament extended the reach of interswitching by increasing the statutory interswitching limits from a radius of 4 miles (6.4 km) to 30 km, as a general rule. Interswitching remained a mandatory regulatory regime. The extension of the interswitching limits extended the competitive benefits of interswitching to a greater number of shippers and their sidings.

[25] Corresponding amendments were made in 1988 to theInterswitching Regulations. It was in 1988 that the Interswitching Regulations were expanded to include various interswitching distance zones and per car interswitching rates. Prior to 1988, there was only one prescribed interswitching rate; the connecting carrier paid the terminal carrier the same rate for each car that was interswitched, regardless of the number of cars involved or the distance travelled to or from the interchange.

[26] In 2014, as a result of, and consistent with, legislative change, the Interswitching Regulations were amended to increase interswitching limits from a radius of 30 km to 160 km. These amendments applied only to interswitching traffic in three provinces: Alberta, Saskatchewan and Manitoba. Parliament intended that these amendments ensure maximum opportunity for competition and for additional railway service to support grain farmers in the Prairie Provinces.

[27] The definition of “car block” was introduced to the Interswitching Regulations in 1988. The definition in effect today and which has not changed since it was first introduced in the Interswitching Regulations, provides:

Car block means 60 or more cars that, as a block, are interswitched at an interchange and are destined to, or originate from a single shipper at a siding.

[28] The above definition of car block includes the words “interchange” and “siding”. An interchange is a term defined in the CTA; a siding is a term defined in the Interswitching Regulations.

[29] As stated, the definition of car block is essentially unchanged since 1988. To the Agency’s knowledge, it has not been judicially considered by the Federal Court of Appeal. In 1992, in Order No. 1992-R-207 (Cominco Fertilizer-AgPro), the National Transportation Agency (NTA), the Agency’s predecessor, determined an application involving a dispute over interswitching of a block of 70 cars. Among other things, the NTA held that the car block rate applied to the interswitching of a block of 70 cars at an interchange even though the block of 70 cars could not all be accommodated on a single storage track at the interchange; the block of 70 cars had to be divided between two storage tracks at the interchange; one that held approximately 40 cars and another that held the remainder.

[30] In Decision No. 466-R-2013, the Agency determined that an interchange, as defined in the CTA, exists at Emerson where CN and BNSF interchange traffic generally and interswitch traffic that is subject to the Interswitching Regulations. The Federal Court of Appeal, in Canadian National Railway Company v. Richardson International Limited, 2015 FCA 180, dismissed CN’s appeal of that decision.

[31] Of central importance to the application now before the Agency is whether the subject traffic that CN and BNSF interswitch at the Emerson interchange constitutes a “car block” as defined in the Interswitching Regulations. This is a matter of some significant practical importance to both railway companies as the prescribed per car rate for interswitching a car block is substantially lower than the prescribed rate that would otherwise apply.

[32] Parliament has delegated considerable jurisdiction and discretion to the Agency in all matters related to interswitching. The Agency may, under subsection 128(1) of the CTA, prescribe the terms and conditions governing the interswitching of traffic and determine the rate per car to be charged for interswitching traffic as well as the methodology to use to determine those rates. Of particular relevance to any dispute as to whether a car block rate applies to interswitching, the CTA provides that when determining an interswitching rate, the Agency shall take into consideration any reduction in costs that, in its opinion, results from moving a greater number of cars or from transferring several cars at the same time, as provided for in subsection 128(2) of the CTA. Among other things, it was the NTA that determined that the car block threshold would be set at 60 or more cars.

[33] To fulfill its interswitching mandate, the Agency periodically examines the actual system-wide costs incurred by the railway industry in performing interswitching operations. The amount of time, effort and equipment required by each railway company to perform interswitching activities, such as the number of cars handled, the distance travelled to/from the interchange and the amount of sorting and classification of cars required in each interswitching operation is part of the Agency’s interswitching rate determination. The work activities vary from one interchange to another, based mainly on the configuration of the railway yard or interchange and the location of the customers. The Agency captures and assesses all of this information in discharging its statutory mandate.

[34] In its current version, interswitching is a significant regulatory tool to promote rate and service competition between railway companies. This is true as most shippers in Canada who benefit from direct railway service at their facility or siding are directly served by only one railway company. As stated above, the interswitching provisions of the CTA are competitive access provisions. Interswitching allows those shippers located within interswitching limits of an interchange to choose another railway company despite having physical access to only one such company. The Interswitching Regulations establish fair and predictable interswitching rates that are applied equally to all terminal carriers when required to provide interswitching services.

[35] The Federal Court of Appeal, in Canadian Pacific Railway Company v. Canada (Transport, Infrastructure and Communities), 2015 FCA 1, at paras. 10-11,and in Canadian Pacific Railway Co v. Canexus Chemicals Canada, LP, 2015 FCA 283, at para. 139, has recognized that Parliament considers interswitching to be among the statutory remedies intended to provide shippers of goods by railway with access to competitive service and rate alternatives and to reduce any particular shipper’s reliance on the particular railway company that owns and controls the line of railway that connects to that shipper’s railway siding.

[36] The provisions of the CTA and the Interswitching Regulations that are relevant to the determination of this application are reproduced in Appendix A.

[37] BNSF is a railway company within the legislative authority of Parliament. It operates a number of lines of railway in Canada on BNSF-owned trackage and by virtue of running rights agreements. Pursuant to Certificate of Fitness No. 97015-6 dated January 21, 2014, it is authorized to operate, among other provinces in Canada, in Manitoba, from Emerson Junction (mileage 63.40) to Portage Junction (mileage 0.0), on CN Letellier Subdivision.

[38] CN is a railway company within the legislative authority of Parliament. It owns and operates a number of railway lines in Canada, including the Letellier Subdivision which runs between the Canada/United States border at Emerson to Portage Junction, Manitoba.

[39] Emerson is an interchange within the meaning of that term in the CTA. It is a point where BNSF and CN interchange traffic; where that traffic originates or terminates at a siding within prescribed interswitching limits, then CN and BNSF must interswitch that traffic at the rates prescribed in the Interswitching Regulations, including, where applicable, the car block rate.

FINDINGS

[40] The information on the record of this proceeding allows the Agency to make the following findings, few of which are subject to any serious dispute between BNSF, CN, RIL or Paterson. Rather, it is the application of these facts to the definition of a “car block” in the Interswitching Regulations that is the core of the dispute.

[41] RIL is a privately-owned agri-food business. In the context of this application, RIL operates the Red River South elevator located in Letellier, Manitoba. The elevator is 20 km north of the Canada/United States border.

[42] The Red River South elevator is located at mileage 52.0 of CN’s Letellier Subdivision and has a siding that allows for direct railway service from CN. The RIL siding at the Red River South elevator is comprised of tracks LE50, LE51, LE52 and LE53. Each of these tracks can accommodate at least 25 railway cars. The total capacity of the RIL siding at the Red River South elevator is 104 cars.

[43] The traffic that RIL ships from the Red River South elevator by rail via BNSF that is the subject of this application consists primarily of grain, shipped as unit trains to destinations in the United States.

[44] The Red River South elevator is located within prescribed interswitching limits of the BNSF – CN Emerson interchange. It is located within interswitching zone 3.

[45] Paterson is a family-owned business that owns and operates 30 licensed elevators across western Canada, including nine high-throughput inland terminal locations. In the context of this application, it operates the Morris Terminal located in Morris, Manitoba. The terminal is 40 km north of the Canada/United States border. Paterson describes the Morris Terminal as a high‑throughput grain elevator and states that it is one of its closest high-throughput terminals to the United States-Canada border. The Morris Terminal is located at mileage 38.23 of CN’s Letellier Subdivison and has a siding that allows for direct railway service from CN. The Paterson siding at the Morris Terminal has a 5 ladder track that includes tracks LE32, LE33, LE34 and LE35. Each of these tracks can accommodate between 25 to 29 cars. The capacity of the Paterson siding at the Morris Terminal is 104 cars.

[46] The traffic that Paterson ships from the Morris Terminal by rail via BNSF and that is the subject of this application consists primarily of grain, shipped as unit trains, destined to points in the United States.

[47] The Morris Terminal is located within the prescribed interswitching limits of the BNSF – CN Emerson interchange. It is located within interswitching zone 5.

[48] The following are facts of this application:

BNSF and CN agree that the traffic in question is subject to the Interswitching Regulations;

BNSF and CN cannot agree on the maximum prescribed rate under the Interswitching Regulations to which CN is entitled when interswitching this traffic as a terminal carrier, for the benefit of BNSF.

CN says that it is the individual car rate per car; BNSF says that it is the rate per car for interswitching a car block.

CN argues that capacity limitations at both of the two subject sidings as well as at the Emerson interchange prevent it from interswitching this traffic as a car block.

CN makes these arguments recognizing that both RIL and Paterson offer the traffic in blocks of 60 or more cars at their respective sidings.

ISSUE 1 – Is the car block rate available if a single shipper is offering a car block of 60 or more cars for interswitching, and if so, is the configuration of the shipper’s siding relevant to determining if the traffic is eligible for the car block rate?

POSITIONS OF THE PARTIES

BNSF

[49] BNSF takes the position that eligibility for the car block rate requires that traffic be offered as a block of 60 or more cars by a single shipper, the traffic be “capable” of being moved as a block, and the traffic be “capable” of being interswitched as a block, regardless of how the terminal carrier actually handles the traffic in practice.

[50] BNSF states that it would be unreasonable if CN could avoid the car block rate by interchanging traffic at a facility that is incapable of receiving a car block. BNSF adds that the majority of the high-throughput grain elevators in the Prairies are configured with ladder-track style sidings, and thus would be precluded from access to the car block rate if the interpretation of CN were adopted.

[51] BNSF states that the configuration of a shipper’s siding has no effect on eligibility for the car block rate. BNSF argues that there is no express language in theInterswitching Regulations that requires a shipper to have the capacity to accept an unbroken car block at its siding in order to be eligible for the car block rate, nor can such a requirement be implied. BNSF argues that all that is required under the definition of “car block” at section 2 of the Interswitching Regulations is for the traffic to be interswitched at an interchange in a car block and that the traffic be destined to or originate from a single shipper at a siding.

[52] To support its argument, BNSF refers to Cominco Fertilizer-AgPro, where it was determined that splitting a train for the purposes of placement on interchange tracks does not affect the eligibility of that traffic for the car block rate. BNSF submits that if the car block rate is available in circumstances where a car block must be divided to place it in an interchange, then it must also be available in circumstances where a car block must be divided in order to be placed in or lifted from a shipper’s siding.

[53] According to BNSF, CN’s assertion that the car block rate is not available if the block must be cut into sections for placement into the customer’s facility or the interchange flies in the face of the Cominco Fertilizer-AgPro decision, which has stood for 24 years.

[54] Finally, BNSF is of the view that Compagnie des Chemins de fer Nationaux du Canada c. Compagnie de Chemin de fer Canadien Pacific et al., [2000] J.Q. no. 2149 (Compagnie des Chemins de fer Nationaux du Canada),relied on by CN, has no application to the current circumstances because it deals with tariff language drafted by CN and not the Interswitching Regulations.

CN

[55] CN states that BNSF’s application primarily involves a question of statutory interpretation as to what constitutes a “car block”. CN submits that the Interswitching Regulations clearly define a car block as 60 or more cars that are (and not “could be”) interswitched as a block. CN states that the definition of “car block” in the Interswitching Regulations expressly requires that the cars actually be interswitched as a block and that there is no reference to capability (i.e. whether the cars could be interswitched as a block) in the definition. CN notes that the traffic at issue in this application was not actually interswitched as a block at the interchange in Emerson. CN submits that this fact is dispositive of this application.

[56] CN submits that BNSF is attempting to amend the definition of “car block” by way of declaration from the Agency. CN also submits that whether any given traffic is eligible for the car block rate is necessarily fact-specific. The question is not simply whether the shipper offers 60 or more cars as a block; it must include consideration of whether the block of cars is picked up from the shipper, dropped off, retrieved, and interswitched to the line haul carrier as a single block in a single movement.

[57] CN adds that there is no evidence that the traffic is capable of being interswitched as a block, in any event. To the contrary, according to CN, while the Emerson interchange is indeed capable of interswitching 60 or more cars, it is physically impossible to do so in unbroken blocks at this location due to the configuration of the trackage.

[58] CN disputes BNSF’s argument that the configuration of a shipper’s siding is irrelevant to eligibility for the car block rate. CN submits that the definition requires that the entire interswitching operation occur “as a block”. In addition, CN submits that the CTA requires that the interswitching rates be compensatory: the lower car block rate is a result of lower costs associated with hauling traffic as a block. CN argues that, if the definition is read to include non-block movements, then the car block rate is no longer compensatory, in direct violation of the CTA.

[59] CN submits that its interpretation is consistent with judicial precedent and refers to the Quebec Superior Court decision in Compagnie des Chemins de fer Nationaux du Canada.

RIL

[60] According to RIL, while CN is authorized to charge a higher interswitching rate for single car traffic than for cars in blocks, the higher charge is not justified in circumstances where the terminal carrier’s own operational choices prevent the traffic from being interchanged in “car blocks”.

[61] RIL further states that by selecting methods that alter its operations in respect of RIL’s traffic, CN is effectively attempting to undermine Agency Decision No. 466-R-2013 and to frustrate the pro-competitive nature of regulated interswitching by artificially raising the cost associated with regulated interswitching.

[62] RIL submits that, contrary to CN’s claim that only “actual” interswitching operations are determinative of whether the car block rate applies, the Cominco Fertilizer-AgPro decision stands for the proposition that the Agency should be guided by a consideration of whether car blocks “can” be interswitched at an interchange. RIL adds that the alternative would be to allow the terminal carrier to manipulate the application of regulated interswitching so as to improperly prevent or discourage the use of this important pro-competitive remedy.

[63] With regard to the configuration of the shipper’s siding, according to RIL, CN recognizes the efficiencies made possible by sidings, like the Red River South elevator, in its published grain tariffs by providing 50-car block and 100-car block rates that are significantly lower than published single car rates.

[64] Finally, RIL argues that the Quebec Superior Court decision in Compagnie des Chemins de fer Nationaux du Canada,is distinguishable on its facts, as the movement at issue did not only require CN to break trains to place them on the receiving tracks at destination.

ANALYSIS AND DETERMINATIONS

[65] The Interswitching Regulations are concise with regard to the definition of car block.

60 or more cars that, as a block, are interswitched at an interchange and are destined to, or originate from a single shipper at a siding

[67] Accordingly, the first criterion of the definition is that 60 or more cars, as a block, must be destined to, or originate from, a single shipper at a siding. In this case, Paterson orders blocks of 104 cars from BNSF for its Morris Terminal. Approximately [REDACTED] of RIL’s traffic is shipped in blocks of 60 or more cars for its Red River South elevator. Therefore, the Agency finds that 60 or more cars, as a block, are destined to, or originate from a single shipper at a siding.

[68] The second criterion of the definition is less clear: 60 or more cars, as a block, are interswitched at an interchange. CN argues that the entire interswitching operation must actually occur as a block in a single movement, including the picking up, dropping off, retrieving, and interswitching to the line haul carrier. BNSF and RIL argue that it is sufficient if the traffic is “capable” of being moved as a block, whether or not this actually occurs. The definition in the Interswitching Regulations is silent in this regard.

[69] In matters such as these, the words of the Supreme Court of Canada in Wilson v. Atomic Energy of Canada Ltd., [2016] S.C.J. No. 29, at para. 102, are apt:

Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.

The modern principle requires that statutes “be read to give the words their most obvious ordinary meaning which accords with the context and purpose of the enactment in which they occur”: CanadianOxy Chemicals Ltd. v. Canada (Attorney General), [1999] 1 S.C.R. 743, at para. 14; Rizzo Shoes, at para. 41. When a court interprets a statute, it is “seeking not what Parliament meant but the true meaning of what they said”: Black-Clawson International Ltd. v. Papierwerke Waldhof-Aschaffenburg A.G., [1975] A.C. 591 (H.L.), at p. 613 (per Lord Reid)…

[70] However, in Chieu v. Canada (Minister of Citizenship and Immigration), [2002] 1 S.C.R. 84, the Supreme Court of Canada cautioned at para. 34 that “this Court has long rejected a literal approach to statutory interpretation,” and therefore, the grammatical and ordinary sense of the words employed in a provision are not determinative. Rather, context is key.

[71] The context of the Interswitching Regulations was mentioned by the Federal Court of Appeal in Canadian Pacific Railway Co. v. Canexus Chemicals Canada, LP, 2015 FCA 283, at para. 139, and in Canadian Pacific Railway Co. v. Canada (Transport, Infrastructure and Communities), 2015 FCA 1, at paras. 10-11, namely, that interswitching is intended by Parliament as a remedy for shippers against the opportunity for monopolistic service and rate situations.

[72] The Agency itself has provided a useful summary of the context of interswitching in Decision No. 35-R-2009, at paras. 62-64:

Basically, what these and related provisions have in common is that they provide specific statutory remedies to shippers or impose obligations on federal railway companies as part of an effort to redress instances where it is alleged there is a lack of competition in the marketplace. Essentially, the underlying policy premise of these provisions is to provide shippers with competitive alternatives.

Interswitching of traffic between railway companies has existed in Canada since the early 1900’s. The concept of interswitching was introduced to limit the proliferation of railway lines in urban areas serving manufacturing-based industries. However, limiting the number of railway lines in an area could create a monopolistic service and rate situation. The ability to exchange or interswitch traffic with another railway company or companies within certain limits was seen as a means to reduce exclusive control over traffic.

The interswitching provisions of the CTA today are meant to provide shippers with greater access to competitive services at known prices to alternate rail carriers within interswitching limits. An interpretation of the relevant legislation should support this objective.

[73] Bearing all this in mind, the Agency finds that, in order to support the objective of interswitching, the definition of “car block” in section 2 of the Interswitching Regulations must be read as 60 or more cars that, as a block, could be interswitched with a reasonable number of hook-and-haul movements at an interchange and are destined to, or originate from a single shipper at a siding.

[74] It would frustrate the very purpose underlying interswitching if the definition in section 2 were interpreted as CN contends: 60 or more cars that, as a block, are actually interswitched at an interchange and are destined to, or originate from a single shipper at a siding. Only the terminal carrier can ultimately decide whether it will actually interswitch the car block as a car block in practice. If this narrow interpretation were accepted, it would give the railway company sole discretion to determine whether the car block rate applied. Simply put, it would be illogical if the availability of a statutory competitive access provision of the CTA, such as interswitching, designed to relieve against near monopolistic situations, were left to the discretion of the very railway company that benefits from that near monopoly.

[75] A railway company providing interswitching services as a terminal carrier cannot demand a higher interswitching rate (the single car rate) where it is the terminal carrier’s own operational choices that would prevent the traffic from being interchanged in a “car block”.

[76] Nevertheless, though interswitching is intended to be a remedy for shippers, it is founded upon the principle that there are efficiency gains, and a corresponding reduction in costs, for railway companies as a result of moving or transferring cars in larger quantities at the same time. It would therefore be inconsistent if the very efficiency gains and cost reductions upon which interswitching is premised were lost, and yet the cheaper car block rate were still available.

[77] As a result, balancing the need of railway companies for low-cost, efficient rail movements with the purpose of interswitching (i.e., enhanced competition between railway companies and improved service for shippers), the Agency finds that it is the number of movements required to interswitch the car block that is determinative of the availability of the car block rate. In instances where the car blocks have to be classified and marshalled in the yard prior to being interswitched, the Agency is satisfied that the car block rate would not apply, as the necessary efficiency gains would be absent. By contrast, if only a reasonable number of hook-and-haul movements are required during the interswitching, the car block rate would apply. This reflects the fact that hook-and-haul movements are less resource-intensive than traffic requiring classification and marshalling, and therefore respects the premise of interswitching (i.e., low-cost, efficient rail movements for railway companies) while ensuring that the objectives of interswitching (i.e., greater access for shippers to competitive services at known prices) are met.

[78] Accordingly, the Agency finds that the definition of car block in section 2 of the Interswitching Regulations must be read as 60 or more cars that, as a block, could be interswitched with a reasonable number of hook-and-haul movements at an interchange and are destined to, or originate from a single shipper at a siding. The reasonable number of hook-and-haul movements inevitably falls to be determined on a case by case basis in light of the factual circumstances of each case.

[79] When determining the impact, if any, of the configuration of a shipper’s siding on whether traffic is eligible for the car block rate, the particular facts of a case must be examined, including the number of cars ordered, the capacity of the shipper’s siding, and the number of movements required to interswitch the traffic.

[80] In Cominco Fertilizer-AgPro, the NTA found that the configuration of AgPro’s siding, which could not accommodate car blocks of 60 or more cars, was not an impediment to the interswitching of blocks of 60 or more cars. The NTA stated:

It is true that a train of 70 cars cannot be placed on a single track at AgPro. A simple doubling over procedure would be required. Approximately 40 cars would be placed on one track, uncoupled, and the remainder placed on a second track. This procedure would take only a short time and there appear to be operational solutions that would avoid conflict with through trains on the Wilkie Subdivision.

[81] The NTA noted efficiencies in the transfer of 60 car blocks at AgPro, which included avoiding supplemental hauling of cars and congestion at the interchange, therefore resulting in a shorter period of time for the cars to be interswitched. Ultimately, considering these efficiencies and the purposes underlying interswitching (i.e., enhanced competition between railway companies and improved service for shippers), the NTA found that “there does not appear to be any impediment to the interswitching of blocks of 60 or more cars at the AgPro interchange”. Accordingly, Cominco Fertilizer-AgPro established the principle that it is possible for a single car block to be broken into a reasonable number of sub-blocks without efficiency being sacrificed to the point that interswitching should no longer apply to that traffic.

[82] Similar to Cominco Fertilizer-AgPro, the evidence in this case establishes that RIL’s and Paterson’s sidings have sufficient capacity to interswitch car blocks, albeit in a reasonable number of sub-blocks. RIL’s Red River South elevator has a capacity of 104 cars over 4 sidings that can accommodate between 25 to 28 cars each (approximately 4 to 5 sub-blocks). Paterson’s Morris Terminal has 5 ladder tracks that can receive up to 104 cars at one time, broken up by strings of 25 to 28 cars (approximately 4 to 5 sub-blocks).

[83] The Agency therefore finds that, applying similar reasoning as in Cominco Fertilizer-AgPro, the configuration and capacity of both RIL’s and Paterson’s sidings in this case does not prevent BNSF from qualifying for the car block rate. The Agency also finds that CN did not demonstrate how the requirements for it to couple/uncouple large block of cars at the two subject sidings would be an impediment to interswitching.

[84] In conclusion, the Agency finds that the car block rate is available if the following conditions are met: a single shipper offers a car block of 60 or more cars for interswitching, and the car block can be interswitched as a block with a reasonable number of hook-and-haul movements, which is determined on a case by case basis. The Agency also finds that the eligibility of the shippers siding configuration must be determined on a case-by-case basis, but will not be disqualified where the siding has sufficient capacity to interswitch car blocks in a reasonable number of sub-blocks.

ISSUE 2 - Is the necessity to break a car block for placement in interchange tracks a relevant consideration in determining eligibility for the car block rate?

POSITIONS OF THE PARTIES

BNSF

[85] BNSF states that CN’s assertion that the car block rate is not available if the block must be cut into sections for placement into the customer’s facility or the interchange conflicts with the Agency’s finding in Cominco Fertilizer-AgPro. BNSF submits that, in that case, the Agency decided that the car block rate is available if there is no impediment to the interswitching of blocks of 60 or more cars at the interchange, even though the car block cannot be placed on a single track at the interchange and it is necessary to perform a doubling over procedure on two tracks. Thus, BNSF submits that the necessity of placing cuts of cars into a customer’s facility or the interchange track has no effect on eligibility for the car block rate.

[86] With respect to costing of interswitching movements, BNSF submits that for customers with ladder tracks or dependent on interchanges where car blocks must be cut, it is reasonable to conclude that such workloads are included in the calculation of the variable costs. BNSF further submits that, even if this is not the case, nothing in the development of interswitching costs can be determinative of a shipper’s entitlement to a car block rate. BNSF adds that the entitlement to the car block rate is exclusively determined by the Interswitching Regulations.

[87] According to BNSF, the case is about determining the circumstances when rail traffic is entitled to the car block rate where CN picks up car block traffic at the shipper’s sidings and brings it to Emerson where it is interswitched with BNSF. The interswitched traffic is transferred between the two railway companies in different ways, at the convenience of the railway companies, including at BNSF Noyes siding or on the main line or yard and spur tracks at Emerson. BNSF submits that some of these methods are more efficient than others and BNSF is willing to work with CN to use the most efficient and operationally convenient means.

[88] BNSF submits that for operational reasons, a railway company may elect not to keep traffic offered as a car block together as a car block when it is being moved. For example, CN might choose to use its downtown Emerson yard even though it cannot hold a car block, meaning that CN will have to place the remainder of the block on other available trackage. It is BNSF’s submission that such operational decisions do not impact the availability of the car block rate.

[89] BNSF agrees with CN that operations can change daily based on conditions. BNSF however disagrees with CN that such changes can have an impact on the eligibility of the traffic for the car block rate if the customer has offered the traffic as a car block. BNSF is of the view that it is not reasonable that CN, in this case, ought to be able to avoid the application of the car block rate merely by changing its operation.

[90] BNSF refers to a headlight meet procedure at Emerson that can be used to interswitch blocks of more than 60 cars.

[91] In answering CN’s questions concerning the step-by-step of train handling maneuvers to interswitch blocks of cars at the Emerson downtown yard, Ridgeville Spur and Emerson junction, BNSF provided examples of operations (delivering and picking up of cars). Moreover, BNSF specifies that BNSF local operating personnel assess and determine the optimal train handling maneuvers for interchange operations in conjunction with their CN counterparts and that the examples provided are how the interchange operation might work. BNSF further specifies that it is unaware of the train handling maneuvers used by CN.

CN

[92] CN states that BNSF has conceded that trains must be broken into cuts before being picked up individually by BNSF at Emerson; CN submits that this does not constitute interswitching as a car block pursuant to the Interswitching Regulations. CN states that Emerson can be utilized to interswitch more than 60 cars, and CN has done so, but not as a car block. CN demonstrates this point by attaching a list of step-by-step maneuvers required to place a 60-to-100 car train at Emerson.

[93] CN submits that the car block rate is available only for hook-and-haul movements when no classification or marshalling is required. Limiting the car block rate to simple hook-and-haul movements is appropriate when the operational requirements of more complicated movements for large blocks are considered.

[94] According to CN, BNSF has not provided any evidence suggesting that block interswitching can be performed at or near Emerson. CN adds that interswitching is physically impossible due to the limitations flowing from the configuration of trackage at Emerson. The manner in which CN interswitches traffic at any location depends on a myriad of factors specific to that point in time, such as the size of the train and other traffic.

[95] CN states that since the issuance of Decision No. 466-R-2013, CN has interswitched all traffic offered in accordance with the Agency’s direction; there has been no proceeding challenging the level of service CN has provided, or CN’s compliance with that order.

[96] Notwithstanding arguments presented concerning BNSF’s facility in Noyes, CN takes the position that Noyes is irrelevant to this proceeding, as it is located in the United States.

[97] CN explains its operational restrictions with regard to the Emerson downtown yard and Emerson junction. CN submits that the only track in Emerson capable of holding 60 cars or more is the Ridgeville Spur and adds that it is not possible to switch unbroken blocks from that location. A block of 60 cars must be broken into a number of smaller cuts, which is a labour-intensive and time-consuming process. CN submits that [REDACTED]. CN adds that [REDACTED].

[98] CN states that the Emerson yard is of limited size with no room to add tracks internally, and that there is no way to expand the yard itself as it is bounded on all sides by developed land owned by third parties, including residential properties, municipal roads, and other railway lines, as well as the Canada-United States border.

[99] In response to BNSF’s proposal of a headlight meet at Emerson, [REDACTED]. CN adds that while this procedure is optimal when available, it still does not allow for the interchange of 60 or more cars as a block.

RIL

[100] RIL states that CN’s assertion that only hook-and-haul interswitching operations can be subject to the prescribed car block rate is not supported by the jurisprudence.

[101] Answering CN’s assertion that the Cominco Fertilizer-AgPro decision is distinguishable due to, among other things, the “practical aspects” of the interchange, RIL submits that CN does not in fact identify any practical differences between the interchange trackage in that case and the interchange trackage at Emerson.

[102] When CN argues that it is “physically impossible to do so in unbroken blocks”, RIL contends that CN chose not to provide specific information regarding its own trackage and operations in order to lead to the conclusion that the splitting of car blocks is necessary and more complex at Emerson than it was for Cominco Fertilizer-AgPro.

[103] RIL submits that the movement of its traffic from the Red River South elevator typically involves a single commodity going to a single destination and requires little or no classification or marshalling.

[104] According to RIL, contrary to CN’s claim that only “actual” interswitching operations are determinative of whether the car block rate applies, the Cominco Fertilizer-AgPro decision stands for the proposition that the Agency should be guided by consideration of whether car blocks “can” be interswitched at interchange. The alternative would be to allow the terminal carrier, in this case CN, to manipulate the application of regulated interswitching so as to improperly prevent or discourage the use of this important remedy.

ANALYSIS AND DETERMINATIONS

[105] In Cominco Fertilizer-AgPro, as outlined above, the NTA found that car blocks may be broken and still qualify for the car block rate.

[106] Similarly, in this case, the Paterson and RIL sidings can accommodate blocks of 60 or more cars, though the car blocks must be broken into approximately 4-5 sub-blocks of 25 to 28 cars on those sidings.

[107] As already explained, the availability of the car block rate for interswitching involves balancing the need of shippers for enhanced competition between railway companies with the need of railway companies for low-cost, efficient rail movements justifying a lower rate. It is for that reason that the Agency finds that the car block rate is available when interswitching a block involves only a reasonable number of hook-and-haul movements without any classification or marshalling. This preserves the efficiency that is the foundation of and prerequisite for interswitching.

[108] In this case, the Agency finds that CN did not demonstrate that there is classification or marshalling of either Paterson’s or RIL’s traffic that would render the car block rate unavailable. Rather, the Agency finds that, in the facts presented in this application, the necessity to break a car block into a reasonable number of sub-blocks for placement in the interchange tracks does not negate the eligibility for the car block rate.

[109] The Agency therefore finds that the necessity to break a car block for placement in the interchange tracks is not, in and of itself, a relevant consideration in determining eligibility of the car block rate. The Agency concludes that it is rather the manner and extent of handling of the traffic at the interchange that determines whether the car block rate is available. Entitlement to the car block rate is lost if there is a requirement to marshall and/or classify cars at the interchange.

REMAINING ISSUES

[110] In light of the foregoing, the Agency finds that it is not necessary to address the other issues formulated by BNSF, as the Agency has already determined that:

the car block rate is available if a single shipper offers a car block of 60 or more cars for interswitching, and the car block can be interswitched as a block with a reasonable number of hook-and-haul movements, which is determined on a case by case basis;

the impact of the configuration of the shipper’s siding on eligibility for the car block rate must be determined on a case by case basis, but the configuration will not disqualify eligibility where the siding has sufficient capacity to interswitch car blocks, albeit in a reasonable number of sub-blocks, which is also determined on a case by case basis; and

the necessity to break a car block into a reasonable number of sub-blocks for placement in the interchange tracks does not negate the eligibility for the car block rate.

COSTS

[111] The Agency finds that there are no special or exceptional circumstances in this matter to justify the granting of an award of costs and therefore dismisses CN’s request for costs.

CONCLUSION

[112] In light of the above, the Agency finds that:

The car block rate is available if the interswitched car block is offered by a single shipper as a block, and the car block can be interswitched as a block with a reasonable number of hook-and-haul movements only, which is determined on a case by case basis. In this case, the Agency has examined the capacity and the configuration of the two subject sidings (Paterson’s Morris Terminal and RIL’s Red River South elevator) as well as the number of hook-and-haul movements required for interswitching their traffic as set out in the examples provided by both BNSF and CN. The Agency finds that the capacity and configuration of the shippers’ sidings and the limited number of movements are such that the interswitching of the subject traffic at the Emerson interchange qualifies for the car block rate.

The necessity to break a car block for placement in interchange tracks does not, in and of itself, negate the eligibility for the car block rate. Rather, it is the handling of the traffic in the interswitching yard that determines whether the car block rate is available. Entitlement to the car block rate is lost if there is a requirement to marshall and/or classify cars in the yard. In this case, the Agency finds that the handling of the subject traffic at the interchange does not involve any requirement to marshall and or classify cars. As such, the car block rate applies.

In light of the foregoing findings, there is no need to consider issues 3 and 4.

This is a public redacted version of Confidential Decision No. CONF-6-2017 that issued on March 9, 2017 which cannot be made publicly available.

Note

Note 1

Based on meeting 83% (5 out of 6) of the Economic Regulation program service standards (as published on the Agency's website).

The London Interswitching case, (1905) 6 C.R.C. 327.

APPENDIX A

LEGISLATION

Canada Transportation Act, S.C. 1996, c. 10

Section 111

Interchange: means a place where the line of one railway company connects with the line of another railway company and where loaded or empty cars may be stored until delivered or received by the other railway company.

Section 127

(1) If a railway line of one railway company connects with a railway line of another railway company, an application for an interswitching order may be made to the Agency by either company, by a municipal government or by any other interested person.

(2) The Agency may order the railway companies to provide reasonable facilities for the convenient interswitching of traffic in both directions at an interchange between the lines of either railway and those of other railway companies connecting with them.

(3) If the point of origin or destination of a continuous movement of traffic is within a radius of 30 km, or a prescribed greater distance, of an interchange, a railway company shall not transfer the traffic at the interchange except in accordance with the regulations.

(4) On the application of a person referred to in subsection (1), the Agency may deem a point of origin or destination of a movement of traffic in any particular case to be within 30 km, or a prescribed greater distance, of an interchange, if the Agency is of the opinion that, in the circumstances, the point of origin or destination is reasonably close to the interchange.

Section 128

128(1) The Agency may make regulations

(a) prescribing terms and conditions governing the interswitching of traffic, other than terms and conditions relating to safety; (b) determining the rate per car to be charged for interswitching traffic, or prescribing the manner of determining that rate, including the adjustments to be made to that rate as a result of changes in costs, and establishing distance zones for those purposes; and (c) prescribing, for the purposes of subsections 127(3) and (4), a greater distance than 30 km from an interchange.

(1.1) A regulation made under paragraph (1)(c) may prescribe different distances for the regions or goods that it specifies.

(2) In determining an interswitching rate, the Agency shall take into consideration any reduction in costs that, in the opinion of the Agency, results from moving a greater number of cars or from transferring several cars at the same time.

(3) In determining an interswitching rate, the Agency shall consider the average variable costs of all movements of traffic that are subject to the rate and the rate must not be less than the variable costs of moving the traffic, as determined by the Agency.

(4) For greater certainty, the transfer of a railway line, or an operating interest in it, under Division V or section 158 of the National Transportation Act, 1987 does not affect any entitlement to an interswitching rate.

Railway Interswitching Regulations, SOR/88-41

Section 2 of the Regulationsstates, among other:

In these Regulations,

car block means 60 or more cars that, as a block, are interswitched at an interchange and are destined to, or originate from a single shipper at a siding (rame de wagons)

sidingmeans

(a) a private siding that connects with a line of railway of a terminal carrier, (b) a team track of a terminal carrier, (c) a track where traffic may be loaded or unloaded directly from or into a shipper’s facility abutting a terminal carrier’s tracks, (d) a track for loading or unloading in a public stockyard, and (e) a point of origin or a point of destination, as those expressions are defined in section 87 of the Act,

but does not include

(f) a track that is used by a terminal carrier for the transfer of traffic between cars or between a car and a warehouse owned by the terminal carrier, or

(g) a track that serves a reload or distribution compound, a container terminal or any other facility operated by a terminal carrier or its agent or for the terminal carrier’s own purposes; (voie d’évitement)

terminal carrier means a railway company that inter-switches traffic at an interchange to or from a siding.(transporteur de tête de ligne)